Real Estate Professional Status

[Colin Reid]

I have a question about Real Estate Professional status as it pertains to taxes. I've been an investor for about 4 years since I moved out of my first home and rented it out. Since then, I have bought two more homes, one being my primary residence and one a pure rental I've never lived in. I got married in 2015 and my wife brought her first home, now rented, to the portfolio. With properties across three states, we decided to hire a CPA to do our taxes. He told us that due to my wife's high income, we cannot deduct our rental property expenses unless one of us (me) becomes a Real Estate Professional, devoting 750 hours per year to real estate. I've never heard this mentioned on the forums, or in any RE books or other media for that matter. I am working on getting licensed but I had planned on using it for referrals only, due to my job being fairly demanding and rigidly scheduled. I'm active duty military and don't have the option to quit for another two years.

[Linda Weygant]

Originally posted by @Colin Reid:

Wow. I knew simply getting my license wouldn't bring the official status, but I didn't know there were so many sub-categories. 

So bottom line is as long as I have a full-time job that is not real-estate related, we cannot take any of the tax advantages of owning rental real estate?

 Yes and no.

Yes, as long as you have a full-time job that is not real-estate related, you are unlikely to reach the real estate designation as you'd need to (presumably) work 40 hours per week at your W-2 job and then 41 hours per week in the real estate profession.  

The tax advantages of owning rental real estate are not lost for you.  They are accumulating year over year.  When the year comes that your income dips below the threshhold, you'll be able to realize the current and past benefits.  Or, if a day comes when you sell one of the properties, all of the losses associated with that property become immediately realizable in that year and everything you've accumulated over the years becomes deductible all at once. 

You should continue to fill out Schedule E's for the properties every year to establish the losses in that year so that they become deductible for you later.  Also, in the event that you bring a property into your portfolio that has net income after depreciation, you'll be able to write your losses, both current and past, from the other properties off against the profits.